Modelling the Informal Economy in Mexico. A Structural Equation Approach

Jos� Brambila Macias () and Guido Cazzavillan
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Jos� Brambila Macias: Department of Economics, University Of Venice C� Foscari
Authors registered in the RePEc Author Service: Jose Brambila-Macias

No 2008_41, Working Papers from Department of Economics, University of Venice "Ca' Foscari"

Abstract: This paper uses annual data for the period 1970-2006 in order to estimate and investigate the evolution of the Mexican informal economy. In order to do so, we model the informal economy as a latent variable and try to explain it through relationships between possible cause and indicator variables using structural equation modeling (SEM). The model uses tax burden, salary levels, inflation, unemployment and excessive regulation as potential incentives or deterrents for the informal economy. Our results indicate that the Mexican informal sector at the beginning of the 1970�s accounted for 40 percent of GDP, and then it slightly decreased to stabilize around 30 percent of GDP from the late 1980�s onwards. The results also confirm the importance of salaries and excessive regulation as causes of the informal economy in Mexico and the existence of a positive relationship between informality and GDP.

Keywords: Informal Economy; Economic Growth; Structural Equations (search for similar items in EconPapers)
JEL-codes: C39 E27 O17 (search for similar items in EconPapers)
Pages: 17
Date: 2008
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Modeling the informal economy in Mexico:a structural equation approach (2010)
Working Paper: Modeling the Informal Economy in Mexico. A Structural Equation Approach (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ven:wpaper:2008_41

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